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What on earth is going on with R&D tax relief?

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Anyone who has even a passing interest in the world of R&D tax relief will know that things are a little strange at the moment. Repayments are being delayed, processing times are up and letters are going out to claimants from the Fraud Investigation Service. HMRC are remaining tight-lipped, and advisors and clients are worried and frustrated!

What’s the problem?

HMRC announced in mid-May that they were pausing the paying out of R&D tax credits (RDTC) due to an increase in irregular claims being made, and that this would have a knock-on effect on processing times for R&D tax relief claims. All well and good, only we now find ourselves two months down the line, and processing and pay-out times appear to be increasing!

At the recent R&D communication forum (RDCF) meeting in mid-July, HMRC assured providers that they’d get back to normal processing times. However, their current stats show only 80% of RDTC claims being processed within 40 days (compared to 98% of claims being processed within 28 days prior to this slowdown). Some providers are reporting that they’re waiting weeks or months for funds to reach their clients after claims have been processed. 

Alongside this increase in processing times, HMRC also appear to have changed their enquiry process, with many claimants now receiving initial letters from the Fraud Investigation Service rather than HMRC’s R&D tax team. The wording of these letters could be seen as more threatening than previously and although HMRC maintain they do not actually accuse the claimant of committing fraud, many claimants and advisors are interpreting them that way.

Isn’t increased compliance a good thing?

Here at WhisperClaims we are wholeheartedly in favour of raising standards in R&D tax relief – we’ve seen too many examples of bad practice not to be! However, from what we’ve observed from both our own customers and across the R&D tax relief sector, HMRC’s current approach might do more harm than good.

First of all, we’re seeing increasing frustration in both accountants and consultants who provide R&D tax services as they see huge delays in claim processing and paying out. At the RDCF this led to a tone of ‘them and us’ in the questions coming from the audience, with much of the blame for the current problems being placed on the heads of R&D tax consultants, most of whom are operating well within the constraints of the scheme. Several questions, which HMRC declined to answer, asked why the whole industry was being punished for the actions of a few ‘cowboys’ providers. 

While this frustration is understandable, the only way that standards can be raised is by bringing together providers from across the spectrum of R&D tax relief to share knowledge and best practice, and the combative attitude resulting from HMRC’s current approach will not enable this to happen.

Secondly, we’ve observed that HMRC’s use of letters from the FIS and seemingly indiscriminate approach to enquiries could be having quite the opposite effect of what they intended. We’re seeing legitimate providers of R&D tax advice being, in essence, scared off from giving this advice and preparing claims, while cowboy providers refuse to support their clients through enquires and, in some cases, fold their companies to avoid HMRC scrutiny. In the long term, this will reduce the number of robust and compliant advisors in the marketplace, and will reduce the quality of the advice and help available to claimant companies. 

What happens now?

It’s really hard to say, given how little we have to go on. Experience says that HMRC will eventually be satisfied that they have routed out enough of the irregular claims and rogue providers to return to normal service, but this is unlikely to be before the early Autumn. 

In addition to the current issues, the legislative changes on the horizon may mean that the slight turmoil within R&D tax relief is likely to continue for some time yet. However, if these changes result in better, more robust claims being made to HMRC and a reduction in the number of cowboys out there, then we’ll all be better off!

If we peel back the layers here, there is some good news:

  • As tax-payers we should be reassured that bad practice, and especially fraud, is being investigated and measures taken to combat this;
  • The R&D tax scheme continues to function, and whilst processing times are extended to 40 days, HMRC have set targets to get back on track;
  • Genuine service providers, seeking to deliver compliant claims and working in the best interests of their clients have nothing to worry about!

Our advice is that genuine providers of R&D tax relief advice continue to offer their services to claimant companies during this time, taking time to review their tools and practices to make sure they have remained compliant with HMRC’s guidance and are offering their clients the best quality advice and service that they can.

The key driver for building WhisperClaims was the need for a highly structured, robust and repeatable process for preparing R&D claims, making sure you address all of HMRC’s requirements. In many respects, there’s never been a better time to explore the use of tech in rolling out an R&D tax service.

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